World Bank pegs future budgetary support to viable economic plan

The finance minister has not yet finalised his strategy to deal with the deepening economic crisis. PHOTO: FILE

ISLAMABAD: The World Bank pegged its future substantial financial support to Pakistan with a viable economic plan that could provide solutions to the country’s decades-old structural problems, which are hemorrhaging the $313-billion economy.

In his first visit to Pakistan, the vice president of the World Bank for South Asia region, Hartwig Schafer, outlined the actions that Islamabad needed to undertake in return of the Washington-based lender’s future budgetary support.

Schafer met Finance Minister Asad Umar at his office, which was the first visit by a senior official of any lending agency and will be followed by a visit of the Asian Development Bank director general the coming day.

The finance minister and vice president discussed the current economic crisis and actions needed to overcome the issues and put Pakistan on a sustainable growth path, World Bank’s Country Director Illango told The Express Tribune after the meeting.

He stated that the vice president conveyed to the finance minister that the “World Bank will continue to support Pakistan through a range of financing instruments, once the government has worked out its economic turnaround strategy by the end of September”.

The international lender has suspended its budgetary support to Pakistan after the country’s macroeconomic situation started deteriorating over one and a half years ago. Currently, the Washington-based lending agency is providing project loans.

For the last three years, the bank’s loan disbursements to Pakistan are on a decline, decreasing from $1.5 billion in fiscal year 2016 to $769.5 million in fiscal year 2018, according to statistics of the finance ministry.

The finance minister has not yet finalised his strategy to deal with the deepening economic crisis. One of the key issues in front of Umar is whether Pakistan will obtain the International Monetary Fund (IMF) programme or not. The decision will also determine the quantum of World Bank and ADB’s lending to Pakistan. Sources familiar with the matter said Umar would wait for the visit of US secretary of state to Pakistan, scheduled for September 5. They said that only after getting a positive response from Mike Pompeo, Pakistan will decide about obtaining the loan from IMF.

While speaking at the floor of the Senate on Tuesday, Umar said that the government is deliberating on the prevailing economic situation in the country and the final decision will be taken after the parliament is taken on board. “If Pakistan decides to go for the IMF programme, it won’t be the first time that Pakistan has gone to the IMF. We have gone for the programme 12 times previously,” he said.

Sources said that in case, Pakistan decided against the IMF programme, the government would have to give a viable economic plan to convince international lenders to restore the budgetary support.

Pakistan’s gross external financing needs for this fiscal year are estimated to be in the range of $26 billion to $28 billion with a financing gap of about $12 billion.

To a question, whether the World Bank would give budgetary support to Pakistan without a letter of comfort from IMF, Illango stated that “Pakistan is a long standing partner and our support will continue with the relevant financing instruments once the strategy is finalised”.

The World Bank group comprises of five institutions. Its two arms, the IBRD and International Development Association (IDA), give loans to governments. The International Bank for Reconstruction and Development (IBRD) offers loans for projects, programmes or policy purposes, as well as hedging products to manage currency and interest-rate risk exposures and guarantee products to eligible member countries.

Sources said that in addition to project financing, Pakistan may secure a programme for results financing from the World Bank. However, the Ministry of Finance will have to share a deliverable plan for fiscal adjustment, increase in tax revenue and take practical steps to cut losses of public sector enterprises. They will also have to share a plan to control the current account deficit. The international lender in the past has asked Islamabad to devalue the rupee against the US dollar to curb aggregate demand.

An official handout of the finance ministry stated that the World Bank vice president assured that the bank would continue to extend support to the Government of Pakistan for implementation of the agenda for economic growth and social development being pursued by the new government.

(This news/article originally appeared in The Express Tribune on August 29th, 2018)